There is currently no legal definition of self-employment, resulting in businesses having to examine case law in order to confirm the statuses of their employees.

The complexities and potential risks of getting it wrong often forces businesses to pay external contractors to do the work, resulting in increased cost and organisational workload.

The OTS has recommended several measures that would reduce the time and money spent by businesses:

create an employment status helpline at HMRC

improve businesses advice about what documentation they need when contracting a self-employed person

research into aligning tax and national insurance contributions for the employed and self-employed.

John Whiting, tax director of the OTS, said:

"The tax system is stuck in an out-of-date mindset. In the 1950s and 1960s the distinction between employees and the classic self-employed jobbing plumber was clear and easy. Nowadays working patterns are hugely varied, freelancing is a way of life for many and that simple split doesn't work often enough.

"This causes uncertainty, risk and administrative burdens all round. We have heard from businesses about transactions being delayed or even abandoned due to the risk posed by employment status uncertainty."